European Commission probes Sky and Hollywood studios on UK cross-border pay-TV

DetailsEditor | 24 July 2015

The European Commission has sent a Statement of Objections to Sky UK and six major US film studios regarding potential breaches of anti-trust rules in providing films for pay-TV services.

And in the brewing legal row between Brussels and the pay-TV giant, plus Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros, the spectre of the Portsmouth Landlady has returned to haunt the industry.

EU antitrust laws are designed to prohibit the restriction of passive sales, that is, the sale of products cross-border in the EU's internal market responding to demands from customers not solicited by the seller.

In its October 2011 ruling on the Premier League/Murphy cases, the EU Court of Justice specifically addressed the issue of absolute territorial restrictions in licence agreements for broadcasting services. The court held that certain licensing provisions preventing a satellite broadcaster from providing its broadcasts to consumers outside the licensed territory enable each broadcaster to be granted absolute territorial exclusivity in the area covered by the license, thus eliminating all competition between broadcasters and partitioning the market in accordance with national borders.

Yet as part of its Digital Single Market strategy the commission wants to ensure that users who buy online content such as films, music or articles at home can also enjoy them while travelling across Europe. Currently, service providers may be prevented from providing such portability features by copyright licensing arrangements. The commission also wants to facilitate wider access to online content across borders, and says that in this context, the Satellite and Cable Directive (93/83/EEC) will be reviewed and it will assess if the scope of the directive needs to be enlarged to broadcasters' online transmissions.

In its Statement of Objections , the commission takes the preliminary view that each of the six studios and Sky UK have bilaterally agreed to put in place contractual restrictions that prevent Sky UK from allowing EU consumers located elsewhere to access, via satellite or online, pay-TV services available in the UK and Ireland. Without these restrictions, Sky UK would be free to decide on commercial grounds whether to sell its pay-TV services to such consumers requesting access to its services, taking into account the regulatory framework including, as regards online pay-TV services, the relevant national copyright laws.

The commission's preliminary view as set out in the Statement of Objections is that such geo-blocking clauses restrict Sky UK's ability to accept unsolicited requests for its pay-TV services from consumers located abroad, ie from consumers located in member states where Sky UK is not actively promoting or advertising its services, that is the passive sales channel. Furthermore it noted that some agreements also contain clauses requiring studios to ensure that, in their licensing agreements with broadcasters other than Sky UK, these broadcasters are prevented from making their pay-TV services available in the UK and Ireland.

As a result, argues the commission, these clauses grant 'absolute territorial exclusivity' to Sky UK and/or other broadcasters. They eliminate cross-border competition between pay-TV broadcasters and partition the internal market along national borders. The commission's preliminary conclusion is that, in the absence of convincing justification, the clauses would constitute a serious violation of EU rules that prohibit anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union).

These antitrust investigations will focus on contractual restrictions on passive sales outside the licensed territory in agreements between studios and broadcasters. If the commission's preliminary position were to be confirmed, each of the aforementioned parties would have breached EU competition rules prohibiting anti-competitive agreements.

This new action follows a similar move by the commission elsewhere in the EU where it is examining cross-border access to pay-TV services in Spain, Italy and France with specific regard to agreements between film studios and broadcasters, namely Canal+ of France, Sky Italia of Italy, Sky Deutschland of Germany and DTS of Spain.

The commission stressed that the sending of a Statement of Objections does not prejudge the outcome of the investigation. Said EU commissioner in charge of competition policy Margrethe Vestager: "European consumers want to watch the pay-TV channels of their choice regardless of where they live or travel in the EU. Our investigation shows that they cannot do this today, also because licensing agreements between the major film studios and Sky UK do not allow consumers in other EU countries to access Sky's UK and Irish pay-TV services, via satellite or online. We believe that this may be in breach of EU competition rules. The studios and Sky UK now have the chance to respond to our concerns."